Price Wars Caused by Switching Costs
In many markets, consumers have "switching costs" (for example, learning costs or transaction costs) of changing between functionally-equivalent brands of a product, or of using any brand for the first time. The author analyzes a four-period, complete-information model of a market with switching costs in which new entry occurs after the second period. The new entry results, in equilibrium, in a price war. That is, the new entrants' prices are higher in the postentry period than in the entry period, and the incumbent's price falls in either the preentry period or in the entry period and subsequently rises. The author interprets the incumbent's lowering its price in the preentry period as limit-pricing behavior. He distinguishes between two types of price war that can occur, and shows how the type, or mixture of types, that arises depends on the size of switching costs. Copyright 1989 by The Review of Economic Studies Limited.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 56 (1989)
Issue (Month): 3 (July)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527 |
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0034-6527|
When requesting a correction, please mention this item's handle: RePEc:bla:restud:v:56:y:1989:i:3:p:405-20. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.